The Treasury is expected to name soon the fund managers who will operate the long-awaited Public-Private Investment Program (PPIP), designed to take the toxic assets off from the banks’ balance sheets, according to several reports published this morning.
While the size of the program has been scaled down, the number of funds managers is expected to be more (nine) than initially announced (five). Firms likely to be included are Pimco, BlackRock (BLK), Wilbur Ross & Co. and Angelo Gordon & Co.
Removing the toxic assets from the banks’ balance sheets has been an integral part of the Obama Administration’s plans to repair the banks, which should enable them to increase lending and support the economy.
While the Toxic Asset Purchase Program (TARP) was originally designed as a way to purchase troubled assets off from financial institutions, most of it was used to inject capital in the banks. A new version of the TARP was later presented by the administration as PPIP. It was welcomed by the markets then, as it was expected to provide a price discovery for the toxic assets.
The program has since been delayed and now scaled back as the credit conditions have improved drastically due to massive efforts by the Federal Reserve, and the banks are able to attract private capital now. Further, there has been a lack of enthusiasm on the part of the sellers and caution on the part of potential buyers regarding tighter government regulations. Also, the FDIC has largely withdrawn from the program.
Even with its decreased importance and the fact that it will likely be a bad deal for the taxpayers, PPIP remains a significant initiative since the amount of toxic assets on the balance sheets of banks like Bank of America (BAC) and Citigroup (C) is still a big concern.
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